Sterling has gone into reverse as a boost from Boris Johnson’s narrow confidence vote victory proves short-lived.
The pound jumped yesterday as the Prime Minister survived the vote despite 148 Tory MPs opposing him, with markets betting the rebellion could end up watering down the UK’s Brexit policy on Northern Ireland.
But it fell back as much as 0.8pc against the dollar to $1.2431 this morning as traders turned their attention back to a cost-of-living crisis that’s threatening to plunge Britain into a recession.
The slowdown in economic growth is keeping longer-term sentiment on the pound close to its lowest levels since 2020, while political turmoil is set to continue even after the vote.
Turkey working to broker deal to restart Ukraine grain exports
Turkey has said it’s working with Russia and Ukraine to broker a deal that would restart grain exports from Ukrainian ports.
The UN-led plan would open a safe shipping corridor to address the global food crisis sparked by Russia’s invasion and the blockade of the Black Sea.
Hulusi Akar, Turkey’s defence minister, said the four nations were working out how mines floating off the port of Odesa and elsewhere along Ukraine’s coast would be cleared and who would do it, as well as who would safeguard the corridor.
He added that “a lot of progress has been made on this issue”.
Turkey has said it’s ready to take on a role within an “observation mechanism” if needed. This could involve Turkish naval escorts for tankers leaving Ukraine and heading toward Turkey’s straits onward to world markets.
Economy fared better than feared in May but recession worries linger
A slowdown in growth was less severe than feared last month, but companies are still worried about soaring costs and the risks of recession.
The latest S&P Global PMI showed private sector growth fell to 53.1 in May – better than an initial estimate of 51.8 released last month.
A separate reading for services came in at 53.4 – also above the initial forecast.
Still, the revisions are unlikely to ease concerns about the outlook for growth. The reading was the worst since February 2021 and the sharpest month-on-month fall on record prior to the pandemic.
Tim Moore at S&P Global said:
New order growth slowed, input price inflation reached a record high and firms warned the cost-of-living crisis was sapping consumer demand.
Growth expectations have dropped in each month since the invasion of Ukraine and are now the weakest since October 2020.
Australia shocks with huge interest rate rise
ICYMI – Australia’s central bank wrong-footed markets overnight as it announced an interest rate increase that was twice as big as expected.
The Reserve Bank raised its cash rate by 50 basis points to 0.85pc, citing a sharp rise in consumer prices. It said it was committed to “doing what is necessary” to rein in inflation.
Governor Philip Lowe said: “The board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead.
“The board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time.
The interest rate rise was the first under new Prime Minister Anthony Albanese and will add to the economic challenges facing his Labor government after it won an election last month that ended nine years of center-right rule.
LME hit with fresh lawsuit over nickel chaos
The London Metal Exchange has been hit with another lawsuit over the chaos that gripped nickel markets earlier this year.
Wall Street trading giant Jane Street is suing the exchange for around $15m (£12m) over its decision to cancel nickel trades after an unprecedented short squeeze.
It comes a day after activist investor Elliott launched a similar suit seeking $456m.
Hong Kong Exchanges & Clearing, which owns the LME, said the latest claim was without merit and will be contested vigorously.
FTSE risers and fallers
After a tentative start, the FTSE 100 has now slid into the red as inflation and growth fears once again grip markets.
The blue-chip index slipped 0.1pc in early trading, with retailers providing the biggest drag.
JD Sports slumped 2.4pc to the bottom of the FTSE 100 after the competition watchdog found it had conspired to fix the price of Rangers football shirts.
B&Q owner Kingfisher and Ocado also fell as a decline in retail sales last month dragged down sentiment across the wider sector.
The domestically-focused FTSE 250 fell 0.3pc despite a 29pc surge in Biffa’s shares after the bin company revealed a £1.4bn takeover offer. Ted Baker dropped by more than a fifth after its preferred bidder walked away from a takeover.
JD Sports accused of breaking law over Rangers kit price-fixing
JD Sports has been found to have conspired in cartel activity to fix the price of Rangers football kits.
The competition watchdog said it had provisionally concluded that JD and rival retailer Elite Sports fixed the retail prices of a number of Rangers-branded replica kits and other clothing products from September 2018 until at least July 2019.
Rangers was also found to have colluded, but only to the extent of fixing the retail price of adult home short-sleeved replica shirts from September 2018 to at least mid-November 2018.
JD Said it expects to take a hit of around £2m from fines and legal fees, but it said the findings were provisional and the final hit could be lower.
It comes after chairman Peter Cowgill stepped down from the sports retailer in the wake of a fine over breaches of competition law and clandestine car park meetings with takeover target Footasylum.
PwC fined £5m for shoddy construction audits
PwC has been fined almost £5m for a series of substandard audits on two construction firms – the latest crackdown by regulators on the Big Four.
The Financial Reporting Council has slapped the professional services giant with a £3m fine in relation to its audits of Galliford Try, while it will pay £1.96m over a review of Kier Group.
PwC was also ordered to report on its most modern audits that considered long-term contracts.
It comes amid sweeping audit reforms aimed at reining in the dominance of the largest accountancy firms and cleaning up the industry following a string of high-profile scandals.
PwC said: “We are sorry that aspects of our work were not of the required standard.” It said it’s “invested heavily” in a program to strengthen audit quality, including those on long term contracts and has “seen the positive impact of the actions we’ve taken”.
Ted Baker suitor walks away from deal
Ted Baker’s sale has hit a stumbling block after the preferred bidder said it no longer intends to make an offer for the chain.
The fashion retailer gave no reason why the suitor backed out of the deal, but said it was not linked to any due diligence review issues.
Sky News last week reported that the preferred bidder was Forever 21 owner Authentic Brands and that the bid was worth around £300m.
Ted Baker said it hadn’t received other non-binding proposals and would now decide whether to proceed with them. Private Equity firm Sycamore Partners has already dropped out of the running.
Shares slumped 12pc as markets opened.
FTSE 100 opens flat
The FTSE 100 is treading water at the open as traders digest Boris Johnson’s hollow confidence vote victory.
The blue-chip index was little changed at 7,610 points.
German factory orders plunge amid China lockdowns
German factory orders unexpectedly sank in April as harsh lockdowns in China piled more pressure on already-strained supply chains.
Demand dropped 2.7pc from March – the third straight decline – driven by fewer foreign orders. That brought the annual figure down 6.2pc.
Germany’s statistics office said: “The increased uncertainty caused by the Russian invasion of Ukraine continues to lead to weak demand, especially from abroad. However, companies still have well filled order books.”
It’s the latest sign of trouble for Germany’s ailing economy as the war and lockdowns spark supply troubles and hit its key manufacturing sector.
Bins firm Biffa bags £1.4bn takeover bid
Rubbish company Biffa has secured a possible takeover offer valuing it at £1.4bn.
The waste management firm said it’s received an approach from US-based Energy Capital Partners at 445p a share, representing a 37pc premium to yesterday’s closing price.
Biffa said it had “carefully evaluated the proposal” and was mindful to recommend it to shareholders should a firm offer be made.
Biffa has granted ECP access to due diligence materials and given the suitor until July 5 to announce a firm intention to make an offer.
UK shopping habits shift
The latest slew of data shows just how much soaring inflation is affecting our spending habits.
Inflation hit 9pc in April after the energy price cap jumped 54pc, while the Bank of England has warned worse is to come.
Tim Wallace has more:
Spending on utilities jumped by more than one-third, according to data from Barclaycard, with groceries and transport also up by almost 5pc driven by the rising price of food and fuel.
Spending on furniture and outdoor goods has collapsed, plunging by a quarter and one-fifth respectively.
Spending on digital services and subscriptions is down by more than 5pc, indicating families are reviewing their lockdown purchases.
But travel spending has almost tripled, reflecting the return of international visits as swathes of rules have been lifted compared with May 2021.
Shoppers cut back amid cost-of-living squeeze
We kick off the day with more grim data on how the cost-of-living crisis is hurting households.
Retail sales fell 1.1pc in May, according to the British Retail Consortium, as soaring energy and food bills left Britons with less disposable income.
ONS figures showed households saved an average of almost £7,000 after Covid struck, but those who could squirrel money away are now unwilling to spend it.
In a further sign of how wallets are being squeezed, Barclaycard data showed spending on utilities jumped by more than a third, with grocery and transport costs also rising.
5 things to start your day
1) ‘National fuel crisis’ as electric car ownership surges It now costs nearly £98 to fill a petrol tank and nearly £102 to fill a diesel tank, with crude prices continuing to climb as Russia attacks Ukraine and sparks emergency planning for fuel shortages in Ireland.
2) Pound climbs as Boris Johnson suffers major rebellion The value of the pound pushed higher as markets bet that last night’s substantial rebellion against Boris Johnson could end up watering down the UK’s Brexit policy on Northern Ireland, alleviating fears of an EU trade war.
3) Chinese microchip company boss accused of spying and stealing trade secrets ASML, the Dutch company whose equipment is used to manufacture cutting edge semiconductor circuits, said Zongchang Yu, a former employee, had transferred trade secrets to Dongfang Jingyuan Electron.
4) Households hoard £7,000 Covid savings as prices spiral Families have saved almost £7,000 since Covid struck, mostly because of lockdowns when they were unable to spend money in pubs, restaurants, “non-essential” shops, travel and holidays.
5) BlackRock will not be the ‘environmental police’ in ethical investing U-turn Larry Fink, head of the world’s largest money manager, said that it is wrong to ask the private sector to ensure that the companies they invest in are doing their part to combat climate change.
What happened overnight
Hong Kong stocks opened slightly lower this morning following a strong run-up the day before. The Hang Seng Index slipped 0.4pc.
The Shanghai Composite Index was flat, while the Shenzhen Composite Index on China’s second exchange also barely moved.
Tokyo shares opened higher as the yen trended lower. The benchmark Nikkei 225 index added 0.2pc.
Coming up today
- Corporate: No scheduled updates
- Economics: Retail sales, PMI Services (UK); Factory orders (Germany); Consumer credit (US)